Wednesday, 17 February 2010

Google and Railway companies

A rough thought…

I like trains, and often thought the railway industry has many similarities to the telecom industry. Both industries are about transporting stuff, just that one is for physical goods, and the other digital goods.

Watching a documentary about railway, I learned this fun fact. In Japan, railway networks are more developed and the industry is full of private railway companies. Some (not sure how many) railway companies run their passenger rail business at a loss consistently. But how do they survive? It turns out, they cross subsidize. By owning both the railway and the department stores around its stations, they use the profits from those stores to fund the railway business. The railway subsidiary continuously improves their ride experience to try to drive more traffic to the department stores.

Could something similar to this happen in the telecom/internet industries? If we consider Google and other expensive web properties to be the department stores, and the railways the internet’s infrastructure (in the sense of browsers/OS, and the telecom infrastructure), could it make sense that companies like Google will eventually want to provide this infrastructure directly to consumers to provide a better surfing/browsing experience in hopes of driving more traffic and value for their search/ads business? What are the factors that would make this proposition of directly controlling the infrastructure more compelling, if at all? Perhaps Google will consider this approach if it find the added benefit of delivering their ideal surfing experience outweighs the cost of setting it up. For example, when the building out their own browsers and OS helps them to understand the users to target their ads and searches much more and help them be way more profitable. Google came up with the Chrome OS and browser so far, and now are branching into the mobile software space. I wonder what is in store next.

Going back to the Japanese railway example, Japan’s national railway company (the crown corporation) couldn’t compete with the private ones because it was prohibited as a public company to operate in the same manner. If one day Google does provide consumers its own infrastructure, both on the software and hardware level, it’ll be an interesting thing to watch.

2 comments:

The rail companies in Japan have an interesting business model. I think there are many parallels with other companies including Google. They subsidize pretty much all of their services through revenue from ads. I would guess that they want to do the same thing for their efforts into other areas such as broadband.

Good thought Brian! Although Google recently announced the plan to build out some high speed networks, my understanding is it's still a test project and they do not yet plan to offer this service to everyone as a regular product offering, which was what I was alluding to.

That said, this could be a good learning experience for them as well. It'll be interesting to see what happens. :)